Having a large backlog of infrastructure projects is usually a good thing. But as state budgets have been roiled by the COVID-19 pandemic, it is imperative that construction businesses review potential road, highway and civil jobs with an eye toward financial trouble spots.
Bond issues around the country have soured amid the coronavirus pandemic, as states are exhausting budgets by deploying dollars to relief projects and direct aid to state residents. Alaska, Hawaii, New Jersey and Oklahoma have all been hit with negative outlook changes to their bond ratings over the past month. Illinois, which has a large pension liability in addition to COVID-related woes, saw its credit rating downgraded to just one notch above junk.
Given the struggles state and municipal budgets are facing, it’s especially important for construction companies reviewing infrastructure projects to take the following steps prior to accepting a job:
- Determine the ultimate sources of project funding and ensure these sources have both committed to fund the project and have the ability to pay for work completed;
- Review potential overexposure to specific customers, geographies or sources of revenues;
- Obtain the latest designs and maintain open communications with stakeholders and project team members to ensure adequacy of the project bid;
- Review sourcing of materials and workers to ensure quality standards are met as initial work is performed;
- Consider including appropriate contingencies to the contract and budget to help offset unforeseen costs
Bond issues around the country have soured amid the coronavirus pandemic, as states are exhausting budgets by deploying dollars to relief projects and direct aid to state residents.
RSM’s construction clients have told us that they’re spending more time on due diligence of their backlogs, as they review funding sources and the financial health of states and municipalities requesting work. These clients have also noted that they have spent quite a bit of time analyzing their contracts for disproportionate exposure–whether customer, geographic, or subcontractor related. Some of the clients saw certain state and local governments shut down construction projects amid the coronavirus pandemic, and are looking for ways to mitigate risks going forward.
Infrastructure builds likely to continue
Despite COVID-related hurdles, the long-term outlook for infrastructure projects remains bullish, as policymakers are set to turn their attention to the nation’s aging roads, bridges and highways. In the past two months both Democrats and Republicans have expressed support for an infrastructure bill to help repair America’s infrastructure, which was given a D+ rating by the American Society of Civil Engineers in 2017, the group’s most recent evaluation.
Additionally, with significantly less people on the roads due to restrictions imposed by state and local governments on travel, contractors engaging in infrastructure projects in the near term may be able to build more rapidly than under normal conditions due to minimal interruptions from everyday life.
With the pressing need for updated infrastructure, as well as support from both sides of the aisle, it is likely we will see a bill passed in the near term to help fix America’s infrastructure.